China’s Market Moves: More Wait, Less Wow
- Investment Research
- Nov 12, 2024
- 2 min read
Thought of the day
Positioning in China’s Market
Defensive Strategy
Neutral Stance on Equities
Spotlight on Tech Sector Risks
A Conservative Approach Amid Limited Stimulus
Following the recent National People’s Congress (NPC) assembly, China’s unveiling of its fiscal support measures has placed a spotlight on its approach to managing debt and growth. The legislative body outlined a comprehensive CNY 10 trillion, multi-year local government debt resolution strategy aimed at reducing hidden debts from CNY 14.3 trillion to CNY 2.3 trillion by 2028. This plan includes an increased debt quota of CNY 6 trillion over three years, aimed at alleviating interest costs by CNY 600 billion and indirectly supporting local economic growth.
Despite the scale of this program, market expectations for broader stimulus measures to revive consumption, reduce housing oversupply, or recapitalize banks were left unmet. This cautious approach, juxtaposed with President Trump’s recent re-election and the potential escalation of U.S.-China trade tensions, triggered a 2% dip in the Hang Seng index on Monday.
Beijing’s reluctance to deploy more expansive stimulus at this juncture suggests a strategic wait-and-see stance, potentially preserving policy flexibility in response to potential tariff escalations. The upcoming December Central Economic Work Conference may provide more clarity, with further measures possibly being announced at the March 2025 NPC session.
Emphasize Defensive Sectors
Given the current backdrop of potential volatility, we recommend a defensive allocation within Chinese equities. High-yield, value-focused sectors such as financials, energy, and utilities—often anchored by state-owned enterprises—are better positioned to navigate market turbulence. These segments are not only resilient to policy shifts but could benefit from targeted government support.
For investment-grade bonds, we maintain a positive outlook, particularly for state-owned entities, which continue to display sound fundamentals. On the currency front, the yuan is expected to face continued pressure, with projections placing USDCNY at 7.3 by the end of 2024 and 7.5 by mid-2025. USD-based investors should consider currency hedging strategies to safeguard against further depreciation.
Neutral Stance with Tactical Opportunities
We maintain a neutral view on Chinese equities in the near term. However, a pronounced market correction, especially in response to trade-related developments or stimulus disappointments, could create entry points in select areas. Notably, Chinese technology stocks, which currently feature attractive valuations and solid growth prospects, present compelling opportunities if a deeper pullback occurs.
Tech Sector Under Scrutiny Amid U.S. Export Controls
The U.S. Department of Commerce’s decision to restrict chip exports to Chinese entities, including advanced AI processors, has reignited concerns within the semiconductor industry. Similar measures in previous years led to short-term market downturns but were followed by recoveries as impacts were assessed to be manageable. We will continue to monitor these developments and their implications for both the tech sector and broader equity markets.
Consumer Confidence Trends Upward
The U.S. Department of Commerce’s decision to restrict chip exports to Chinese entities, including advanced AI processors, has reignited concerns within the semiconductor industry. Similar measures in previous years led to short-term market downturns but were followed by recoveries as impacts were assessed to be manageable. We will continue to monitor these developments and their implications for both the tech sector and broader equity markets.
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